Painting the distribution picture

By Brian Lucius

Gradient Positioning Systems, LLC

Effective marketing campaigns are formed from ultimately understanding the end result of how people think, react and make decisions.

Deriving a message that talks directly to your client's feelings will generate not only a higher quantity of responses, but will attract people who are truly interested in a specific need, bringing you a higher closing percentage.

The one example I wanted to walk through is inarguably one of the largest concerns facing retirees today: distribution of retirement assets, or more commonly clichéd, income planning.

If I create a marketing message saying “we specialize in income planning,” it doesn’t speak as effectively to a client as it could. It doesn’t target a direct concern of mine because most clients and prospects have already created an income plan, as loose as it may be, in their head. Is that the correct way to create a plan?

One would argue no, but again, that’s the message we used, and that’s the risk we take by utilizing a generic message.

Let’s dig deeper into why income planning is important. Ask a prospect or a client this: “If someone were to write you a check today, and you could never work again after cashing this check, what would the value of the check have to be?”

They will typically respond with a joke at first, $100 million. Let them know you are serious.

“Seriously, what would that number be?”

They are going to give you a number, say $2 million. Now ask the client, “Why do you say $2 million?”

They will typically have a response like this, “I feel that with $2 million, I could withdraw 5 percent a year, which would give me $100,000 a year.”

Perfect, we’ll come back to that in a minute.

“Now, Mr. and Mrs. Client, chances are, only in a dream world would someone write you a check like that for nothing. I am going to assume you’ve given me a dream income goal. Back to reality here. I see you have $600,000 in assets right now, and you are 55 years old. You have also told me you plan to retire in 10 years. Let me ask you a couple questions.”

At this point, write down their answers on a piece of paper so they can follow along.

“You have $600,000.” (Write down $600,000.)

“If you did nothing different with your money, what interest rate do you feel you could average over the next 10 years?”

“We would say five percent,” the client responds.

“$600,000 at five percent per year for 10 years is $977,337,” you say. “So, Mr. and Mrs. Client, you are now 65 years old and you need to take this $1 million and create income that you won’t outlive. Is that your goal? If so, what percentage will you withdraw of this $1 million?”
“Four or 5 percent,” the client says.

Again, if the client gives you a 10 percent number, I would explain that you are not the advisor they want since you plan so clients never run out of money. At a 10 percent withdrawal rate, you couldn’t help them meet that expectation.

“Okay, so 5 percent of $1 million is $50,000 a year. Is that a comfortable number for you to live on?”

“That would work for us,” the client says.

“In order for this to work out, we are making some speculations here,” you say. “We are hoping the market behaves and generates an average rate of return of 5 percent. Then when you begin distributions, we are also going to make the assumption that the market behaves and continues to not only average, but maintain a 3 percent to 5 percent growth so our account value doesn’t go backwards. Are you comfortable with those assumptions?”

What if there was a way I could guarantee that $50,000 a year and still leave you with left over money? That money could be used for growth and accumulation, and the $50,000 we guaranteed would never be affected by market losses. Would you be more comfortable designing an income plan on speculation or guarantees?”

The benefit to this exercise is twofold. One, you will use a sales idea that lets people buy what they want, not get sold what you are offering. They have given you a number they are looking for in retirement, and you are helping them guarantee that money.

You are also, with many income riders, able to outperform their assumed growth rate (even though it’s an interest credit, not an interest rate) and also oftentimes, at age 65, will distribute at the same rate they were looking for, 5 percent. Not only will you help them secure the income they want, but you’ll do it with guarantees and most likely still have money left over for accumulation type vehicles.

The reason we started this exercise is effective marketing. It turns out that most prospects and clients are more concerned with the amount of money they can receive in retirement, not the overall value of the portfolio.

Although they constantly have that magic retirement number in their head, it is typically based on a formula they have to produce income. Take that message, and you’ll reach right to the core decision-making feeling.